Scorpio Bulkers Inc. Announces Financial Results for the Third Quarter of 2014

Scorpio Bulkers Inc. reported its results for the three and nine months ended September 30, 2014. The Company had minimal operations from the period from March 20, 2013 (date of inception) to September 30, 2013.

Results for the three and nine months ended September 30, 2014

For the three months ended September 30, 2014, the Company had a net loss of $18.9 million, or $0.14 basic and diluted loss per share. This loss includes the noncash amortization of stock-based compensation of $6.3 million.

For the nine months ended September 30, 2014, the Company had a net loss of $44.6 million, or $0.34 basic and diluted loss per share. This loss includes the noncash amortization of stock-based compensation of $17.6 million.

The Company had minimal operations during the period from March 20, 2013 (date of inception) to September 30, 2013 so the prior year periods are not comparable to results for the three months and nine months ended September 30, 2014.

Explanation of Components of Financial Results for the Third Quarter of 2014 and 2013

For the three months ended September 30, 2014, the Company recorded a net loss of $18.9 million. The Company recorded a net loss of $2.7 million for the three months ended September 30, 2013.

Time charter equivalent, or TCE revenue, a non-GAAP measure, is vessel revenues less voyage expenses (including bunkers and port charges). TCE revenue is included herein because it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters, and pool charters), and it provides useful information to investors and management.

TCE revenue was $12.4 million for the three months ended September 30, 2014, associated with 22 vessels time chartered-in and one vessel owned, for which TCE revenue per day was $6,941 (see the breakdown of daily TCE averages below). Time charter equivalent revenue per day was adversely affected by a depressed rate environment for dry bulk carriers as well as the integration of the time chartered-in vessels into our fleet which required significant time and fuel as they had to be repositioned for certain of their first voyages.

Vessel operating costs for the three months ended September 30, 2014 were $0.4 million related to two Kamsarmax vessels delivered to the Company from the shipyards in August and September 2014.

Depreciation for the three months ended September 30, 2014 was $0.1 million and relates to two Kamsarmax vessels delivered to the Company from the shipyards in August and September 2014.

Charterhire expense was $22.9 million for the three months ended September 30, 2014 relating to the time chartered-in vessels described below. See the Company’s Fleet List below for the terms of these agreements.

General and administrative expense was $8.0 million for the three months ended September 30, 2014. Such amount included $6.3 million of restricted stock amortization (noncash) and the balance primarily related to payroll, directors’ fees, professional fees and insurance. General and administrative expense was $0.7 million for the three months ended September 30, 2013.

During the three months ended September 30, 2013, the Company incurred a $2.1 million loss in connection with a shareholder receivable denominated in Norwegian kroner that was not settled in U.S. dollars until October 2013.

Explanation of Components of Financial Results for the Nine Months Ended September 30, 2014 and the Period From March 20, 2013 (Date of Inception) to September 30, 2013

For the nine months ended September 30, 2014, the Company recorded a net loss of $44.6 million and recorded a net loss of $2.7 million during the period from March 20, 2013 (date of inception) to September 30, 2013.

TCE revenue was $27.8 million for the nine months ended September 30, 2014, associated with 24 vessels time chartered-in and one vessel owned, for which the time charter equivalent revenue per day was $7,570 (see the breakdown of daily TCE averages below). Time charter equivalent revenue per day was adversely affected by the integration of the time chartered vessels into our fleet which required significant time and fuel as they had to be repositioned for their first voyages as well as a depressed rate environment for dry bulk carriers.

Vessel operating costs for the nine months ended September 30, 2014 was $0.4 million related to two Kamsarmax vessels delivered to the Company from the shipyards in August and September 2014.

Depreciation for the nine months ended September 30, 2014 was $0.1 million and relates to two Kamsarmax vessels delivered to the Company from the shipyards in August and September 2014.

Charterhire expense was $49.5 million for the nine months ended September 30, 2014 relating to the time chartered-in vessels described below. See the Company’s Fleet List below for the terms of these agreements.

General and administrative expense was $23.4 million for the nine months ended September 30, 2014. Such amount included $17.6 million of restricted stock amortization (noncash) and the balance primarily related to payroll, directors’ fees, professional fees and insurance. General and administrative expense was $0.7 million for the period from March 20, 2013 (date of inception) to September 30, 2013.

During the period from March 20, 2013 (date of inception) to September 30, 2013, the Company incurred a $2.1 million loss in connection with a shareholder receivable denominated in Norwegian kroner that was not settled in U.S. dollars until October 2013.

Recent Significant Events

$411 Million Credit Facility

On October 20, 2014 the Company announced that it has received commitments from a group of financial institutions for a loan facility of up to $411.264 million (the “Facility”).

The Facility was arranged by DNB Markets, Inc. and contains commitments from financial institutions including DNB Capital, LLC, the Export-Import Bank of Korea (“KEXIM”) and Korea Trade Insurance Corporation (“KSURE”) as well as Korean and international pension funds and financial institutions.

The Facility shall mature six years from the delivery of the final vessel securing the Facility, however not later than June 2022, and in certain circumstances the Facility shall mature 12 years after the delivery of each financed vessel. The Facility is available to finance up to 60% of the contract price of the Company’s 12 Capesize bulk carriers under construction at Sungdong Shipbuilding & Marine Engineering Co., Ltd, South Korea. The terms and conditions of the Facility, including covenants, are similar to those in the Company’s existing credit facilities and customary for financings of this type, and the commitments from KEXIM and KSURE are in accordance with OECD Guidelines. The Facility is subject to customary conditions precedent and the execution of definitive documentation.

$42 Million Credit Facility

On October 22, 2014, the Company announced that it has received a commitment from a leading European financial institution for a loan facility of up to $42.0 million (the “Loan Facility”).

The Facility will be used to finance up to 60% of the market value upon delivery of two Kamsarmax vessels currently under construction at Imabari Shipbuilding Co. Ltd., Japan. The Loan Facility has a final maturity of six years from the date of delivery of each vessel. The terms and conditions of this commitment are consistent with those of the Company’s existing credit commitments. The Loan Facility is subject to customary conditions precedent and the execution of definitive documentation.

Update on Fleet Financing

Including the two credit facilities described above, the Company has now either signed loan agreements or received commitments for 66 of the vessels in its fleet. In addition, the Company has received proposals from leading European and Asian financial institutions to finance a portion of the cost of its remaining 14 unfinanced vessels. The terms and conditions of these proposals, for which commitments are expected within 2014, are consistent with those of the Company’s existing credit commitments. The closing of any resultant loan facilities would remain subject to credit approval and customary conditions precedent, including negotiation and execution of definitive documentation.

Senior Notes Offering

On September 22, 2014 the Company issued $65 million in aggregate principal amount of senior unsecured notes (the “Notes”). The Notes will mature on September 15, 2019 and may be redeemed in whole or in part at any time or from time to time after September 15, 2016. The Notes will bear interest at a rate of 7.5% per year, payable quarterly on each March 15, June 15, September 15 and December 15, commencing on December 15, 2014. The Notes were issued in minimum denominations of $25.00 and integral multiples of $25 in excess thereof. The Company intends to use all or substantially all of the net proceeds of this offering to fund installment payments due under its newbuilding program, and the remaining amount, if any, for general corporate purposes and working capital. The Company had granted the underwriters a 30-day option to purchase an additional $9.75 million in aggregate principal amount of Notes.

On October 16, 2014, underwriters exercised their option to purchase an additional $8,625,000 aggregate principal amount of the Notes (the “Additional Notes”) at $25.00 per note. The Company plans to use all or substantially all of the net proceeds of this offering to fund installment payments due under its newbuilding program, and the remaining amount, if any, for general corporate purposes and working capital. Following the closing of the Additional Notes, the Company has $73,625,000 aggregate principal amount of the Notes outstanding.

Contemplated Bond Offering

The Company is currently evaluating raising additional capital in the institutional bond markets in an offering exempt from registration under the Securities Act of 1933, as amended. The Company believes this could provide an opportunity to diversify its sources of funding and further strengthen the Company’s balance sheet.

Time chartered-in vessels

During the third quarter of 2014, the Company entered into five time charter agreements.

A Post-Panamax vessel built in 2012 at a Chinese shipyard. This vessel has been time chartered-in for 21 to 25 months at the Company’s option at $13,000 per day. The Company has the option to extend this time charter for one year at $14,000 per day. This vessel is expected to be delivered December 2014.

A Post-Panamax vessel built in 2011 at a Chinese shipyard. This vessel has been time chartered-in for 11 to 13 months at the Company’s option at $9,500 per day. The Company has the option to extend this time charter for one year at $11,500 per day. The vessel was delivered on September 10, 2014.

A Kamsarmax vessel built in 2014 at a South Korean shipyard. This vessel has been time chartered-in for 11 to 14 months at the Company’s option at $12,000 per day. The Company has the option to extend this time charter for one year. The vessel was delivered on August 22, 2014.

A Panamax vessel built in 2014 at a Chinese shipyard. This vessel has been time chartered-in for 10 to 13 months at Company’s option at $5,000 per day for the first 40 days and $10,000 per day thereafter. The Company has the option to extend the charter for one year at $12,000 per day. The vessel was delivered on August 10, 2014.

A Supramax vessel built in 2008 at a Chinese shipyard. This vessel has been time chartered-in for 21 to 25 months at the Company’s option at $12,250 per day. The Company has the option to extend this time charter for one year at $13,000 per day. The vessel was delivered on September 13, 2014.

Current Liquidity

As of October 27, 2014, the Company had $208.9 million in cash and cash equivalents.

Newbuilding Program

The aggregate purchase price of the vessels in our initial fleet of 80 vessels was $3,102.8 million, of which two Kamsarmax vessels were delivered to us during the third quarter of 2014. As of October 27, 2014, we have paid a total of $936.0 million in installment payments due under our shipbuilding contracts for our Initial Fleet, including payments for the two vessels delivered to us. The remaining $2,166.8 million is scheduled to be paid in installments through the delivery dates of each vessel. The Company currently has 29 Ultramax newbuildings, 21 Kamsarmax newbuildings and 28 Capesize newbuildings.
Source: Scorpio Bulkers Inc.